Full text of Eighth District Beige Book : April 2017

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Federal Reserve Bank of

St. Louis
The Beige Book

■

April 2017

Summary of Economic Activity
Reports from contacts suggest that economic activity in the District has continued to increase at a modest pace since
our previous report. Overall employment growth was modest, while wage growth remains moderate. Overall inflationary
pressures remained modest. Reports on consumer spending suggest moderate growth since our previous report, with a
moderate uptick in auto sales toward the end of the first quarter. Real estate activity was little changed, while District
banks reported moderate growth in loan demand. Overall activity in agriculture and natural resources remains weak
because of low commodity prices; however, conditions remain generally unchanged since the previous report.

Employment and Wages

Little Rock reported feed prices have declined, given the
lower price of corn. Since the previous report, prices for
coal and rice have remained about the same, while
prices for corn, soybeans, sorghum, and wheat have
declined slightly.

Anecdotal evidence suggests modest employment
growth since the previous report. Several industries
continue to report shortages of available workers. Construction contacts in Memphis and Little Rock reported
shortages of workers, and manufacturing contacts reported difficulties in hiring and retaining experienced
employees. Contacts in transportation and manufacturing reported that growth has been restrained because of
difficulties hiring experienced workers.

Across the District, home prices continued to increase
moderately, with contacts in all areas reporting low inventory. Contacts in Memphis and Louisville reported
rents were modestly higher for Class A commercial
properties, particularly in some major markets. Price
pressures from construction materials were mixed. Contacts in Little Rock reported solid wood prices increased
modestly, while prices for pine saw timber, chips, and
pulpwood remained flat or decreased slightly since the
mild winter allowed for an increase in supply.

Contacts reported moderate wage growth since the
previous report. A manufacturing contact in Louisville
noted upward pressure on wages in the region, with
employers expecting to moderately increase wages.
Anecdotal evidence suggests that tightness in the labor
market has resulted in some employers increasing wages to attract employees.

Consumer Spending
Reports from general retailers, auto dealers, and hoteliers indicate consumer spending growth has been moderate since our previous report. Retail sales growth was
particularly strong in the Memphis area; accordingly, the
majority of households in west Tennessee continue to
hold an optimistic outlook for their financial situation for
2017. Furthermore, the northwest Arkansas region reported record sales tax revenue figures for March. Hospitality contacts in St. Louis and Louisville reported a
modest to moderate decline in occupancy rates. Reports

Prices
Price pressures in the District remained modest. Business contacts did not report changes in overall prices
charged to customers. Low commodity prices continue to
put pressure on sectors dependent on the agricultural
sector. The most-expensive used farm equipment is
selling at deep discounts at auctions, while equipment
prices have remained stable or increased slightly for the
less-expensive equipment. Contacts in Memphis and

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Federal Reserve Bank of St. Louis
from auto dealers indicate that sales picked up after a
relatively slow January. Furthermore, multiple dealers in
the Memphis area noted a shift in demand toward used
vehicles.

noted some concerns that St. Louis office vacancy rates
will rise in the near future due to new construction combined with expiring leases of vacant properties.
Commercial construction activity was mixed. Nonresidential construction started to dip in February.
However, recent reports from local contacts were generally positive, with most seeing either a continuation of
strong construction activity or an increase in the number
of projects undertaken. Contacts expect this trend to
continue through the year. New projects for various
property types were announced or broke ground, including several new hotels, multifamily structures, speculative industrial parks, and mixed-use projects.

Manufacturing
Manufacturing activity has increased modestly since our
previous report. Manufacturing activity in March was
stronger than one month earlier in both Arkansas and
Missouri, although the pace of increase slowed slightly in
Missouri. Many companies reported capital expenditure
and facility expansion plans in the District, including firms
that manufacture medical devices, clothing, and chemical products. However, a number of firms announced
plans to close facilities, including manufacturers of machinery, food products, and primary metals.

Banking and Finance
Banking and credit conditions in the District have
strengthened at a moderate rate since the previous
report, with some signs of accelerating growth in lending.
Real estate loan volumes increased at a moderate pace
over the period, with the rate of growth continuing to tick
upward. However, contacts report that high-volume
lenders are shrinking market areas for multifamily properties due to softening demand. Meanwhile, commercial
and industrial lending among District banks rose at a
moderate to robust rate and markedly outpaced the
nation in terms of growth. Loans to individuals and
households continue to expand at a robust rate and
continue to account for an increasingly larger share of
outstanding loan portfolios.

Nonfinancial Services
Reports of plans in the District’s service sector have
been mixed since the previous report. In particular, several firms that provide transportation, warehousing, and
information services reported plans to build new facilities
or expand employment. Two trucking contacts reported
business is good enough to justify new equipment and
increased hiring. Reports from the professional business
services sector were mixed. Some existing employers
laid off workers, but new companies opening in the District were hiring and building facilities. Reports from the
healthcare sector were mostly negative; layoffs were
announced in Louisville and Memphis; however,
healthcare facility expansions were announced in Little
Rock.

Agriculture and Natural Resources
Agricultural conditions were unchanged from the previous report and the same time last year. In March, farmers planned to plant about 20 percent more cotton than
last year, but 20 percent less rice. These movements
correspond to a continued increase in cotton fiber prices
and a continued decline in rice prices. With corn and
soybean prices remaining low, farmers planned to reduce corn acreage by 5 percent and increase soybean
acreage by roughly the same percentage. This planned
switch in the District’s two largest crops was largely
driven by the fact that soybeans, with much lower peracre costs, require much smaller operating loans.

Real Estate and Construction
Residential real estate activity has decreased slightly
since our previous report. Home sales declined in most
major metro areas. Local contacts continued to report a
shortage of inventory relative to strong current demand.
Concerns about rising mortgage rates were mixed, as
some contacts indicated that higher rates have had no
significant effect on the market.
Residential construction activity has improved modestly
since the previous report. February construction starts
were generally flat, while permit activity increased moderately. Some local builders reported that speculative
homes were selling before completion, indicating that
construction has continued to lag behind demand.

Natural resource extraction conditions improved modestly from the previous report. District seasonally adjusted
coal production grew 4 percent from January to February
and was 10 percent higher than one year ago. ■

Commercial real estate activity has been flat since the
previous report. Local contacts indicated that demand
has remained steady for most property types. Contacts

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Federal Reserve Bank of St. Louis
Real estate conditions were somewhat mixed. March
single-family home sales were unchanged relative to the
same time last year. However, construction activity
picked up modestly.

Highlights by Zone
The report provides an overview of economic conditions in the Eighth District based on information received from business contacts. Because aggregating
zone data to the District level sometimes masks variations in conditions within the District, the summaries
below are by zone: The headquarters office is in St.
Louis and the branch offices are in Little Rock, Louisville, and Memphis.

Little Rock Zone
Economic conditions in the Little Rock zone have improved at a moderate pace since our previous report.
With generally low unemployment rates, labor market
conditions remain tight. Contacts noted that even with on
-the-job training, there is significant turnover.
Overall consumer spending activity improved modestly.
Auto dealers reported that sales started picking up in
February after a slow January.
Manufacturing activity increased at a moderate pace,
and contacts hold a generally optimistic outlook for the
upcoming months.
Residential real estate conditions have continued to
soften. Seasonally adjusted home sales declined modestly between January and February and are about 5
percent lower than one year ago. Similarly, construction
activity weakened slightly, with a drop in single-family
permits.
In a notable turn, Arkansas farmers planted significantly
fewer acres of rice.

Louisville Zone
Conditions in the Louisville zone improved at a modest
pace, with some general weakness on the consumer
spending side and strength in real estate markets.
Wage pressures remain moderate, as almost all polled
regional employers are expecting wages to increase
around 3 percent during the year.
Auto dealers reported mixed sales activity during the first
quarter, while hotel occupancy rates in Louisville have
declined.

St. Louis Zone
Economic conditions in the St. Louis zone improved at a
modest pace. Contacts report that hiring is generally
slow but jobs in hospitality and healthcare are in high
demand. Manufacturing activity improved modestly, and
contacts expect continued modest growth.

Commercial real estate prices for most property types
continued to increase modestly from a year ago, except
suburban office, retail power centers, and regional malls.
Seasonally adjusted homes sales rebounded in February, increasing almost 5 percent from January, but activity remains slightly slower than one year ago. Similarly,
residential construction activity was generally unchanged.

Consumer spending improved at a modest pace, as
Missouri sales tax collection increased in March both
with respect to February and with respect to a year ago.
Conversely, hospitality contacts in St. Louis and Springfield reported weakness in the hospitality sector during
the past two months.

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Federal Reserve Bank of St. Louis
Memphis Zone
Economic conditions in the Memphis zone have improved at a moderate pace since our previous report.
The pace of hiring remains slow, as employers have
struggled to attract workers to keep up with demand.
The furniture industry in northeast Mississippi is very
strong and some manufacturers cannot fill orders due to
lack of workers. A large manufacturer has begun offering
a sign-on bonus to attract new employees.
Consumer spending activity showed signs of a rebound
after a weak start to the year. Multiple auto dealers reported unusually strong months, especially for used cars.
Reports of convention and tourist activity also indicate
strong spending in February and March. Measures of
consumer sentiment for west Tennessee improved in
March relative to three months ago.
Housing market activity was somewhat mixed. Seasonally adjusted home sales fell sharply between January and
February, but February sales remain 3 percent higher
than one year ago. Prices have also moved up. A contact
in Memphis noted that an inventory shortage is driving up
prices for homes in the $200,000 to $400,000 range. ■

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Federal Reserve Bank of St. Louis

Disclaimer

What is the Eighth Federal Reserve District?
The Federal Reserve Bank of St. Louis is the headquarters for the Eighth Federal Reserve District, also known
as District 8H. With Branches in Little Rock, Louisville,
and Memphis, the District serves approximately 14.6
million people in the four zones that span all of Arkansas
and parts of the six states of Missouri, Mississippi, Tennessee, Kentucky, Indiana, and Illinois.

This document summarizes comments received from
contacts outside the Federal Reserve System and is not
a commentary on the views of Federal Reserve officials.

Frequently Asked Questions
What is The Beige Book?

The Federal Reserve Bank of St. Louis is one of 12
regional Reserve Banks in the United States that, together with the Board of Governors in Washington, D.C.,
make up the Federal Reserve System—the nation's
central bank. The St. Louis Fed and the other regional
Reserve Banks help formulate monetary policy, supervise and regulate banks and bank holding companies,
and provide financial services to depository institutions
and the federal government.

The Beige Book is a Federal Reserve System publication about current economic conditions across the 12
Federal Reserve Districts. It characterizes regional economic conditions and prospects based on a variety of
mostly qualitative information, gathered directly from
District sources.
The qualitative nature of the Beige Book creates an
opportunity to characterize dynamics and identify emerging trends in the economy that may not be readily apparent in the available economic data. Because this information is collected from a wide range of business and
community contacts through a variety of formal and
informal methods, the Beige Book can complement other
forms of regional information gathering.

Join Our Panel of Business Contacts
The anecdotal information in this report was provided by
our panel of business contacts. If you’re interested in
becoming a member of our panel, follow this link to
complete a trial survey:

How is the information collected?

www.research.stlouisfed.org/outlooksurvey/.

Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District
through reports from Bank and Branch directors, plus
phone and in-person interviews with and online questionnaires completed by businesses, community contacts,
economists, market experts, and other sources.

Or email us at beigebook@stls.frb.org.

For more information, contact the St. Louis office:
Charles Gascon
charles.s.gascon@stls.frb.org

How is the information used?

Media inquiries

The anecdotal information collected in the Beige Book
supplements the data and analysis used by Federal
Reserve economists and staff to assess economic conditions in the Federal Reserve Districts. This information
enables comparison of economic conditions in different
parts of the country, which can be helpful for assessing
the outlook for the national economy. The Beige Book
also serves as a regular summary of the Federal Reserve System’s efforts to listen to businesses and community organizations.

mediainquiries@stls.frb.org

Where can I find other Federal Reserve District
Reports?
All current and past versions of the Beige Book are
available on the Federal Reserve Board of Governors
website: www.federalreserve.gov/monetarypolicy/
beigebook/.

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